Banks to give 4.2m mobile borrowers 50pc discount on unpaid loans

Capital Markets

Banks to give 4.2m mobile borrowers 50pc discount on unpaid loans


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Central Bank of Kenya Governor Patrick Njoroge. PHOTO | DIANA NGILA | NMG

The Central Bank of Kenya (CBK) has announced that commercial banks and microfinance banks will give 4.2 million mobile borrowers at least 50pc discount on defaulted loans to encourage them to repay and repair their credit standing.  

The plan, dubbed Credit Repair Framework, will see banks enter into a new repayment plan with borrowers with non-performing accounts and who have been reported to Credit Reference Bureaus (CRBs).

CBK said on Monday that banks will reach out to defaulters who were mostly affected by the Covid-19 pandemic and enter new repayment plans for the outstanding loan balance. The repayment period will expire on May 31, 2023.

“It is anticipated that the Framework will enable over 4.2 million mobile phone digital borrowers, adversely listed with CRBs, to repair their credit standing. The total value is approximately Sh30 billion, equivalent to 0.8 percent of the gross banking sector loan portfolio of Sh3.6 trillion at end of October 2022,” CBK said in a statement.

The banking regulator said on Monday that banks will contact individuals and businesses affected to renegotiate the new terms and set a new repayment period that will expire in May next year. 

The economic fallout from the Covid-19 pandemic and the rising cost of living has pushed Kenyans to short-term mobile phone loans to fund their day-to-day needs.

However, this has come at a cost as some have failed to repay as the loans fall due, leading to mounting black listings on CRBs.

“CBK reminds the public to honour their payment obligations on their credit facilities when they fall due. When borrowers experience challenges in repaying their loans, they should proactively engage their lenders,” CBK noted.

Data from the country’s three CRBs showed that borrowers who had defaulted on digital loans of less than Sh1,000 made up the bulk of 4.6 million borrowers blacklisted at the time.

The rising number of blacklisted loan accounts has reduced the chances of millions of Kenyans being able to borrow more to grow their businesses or for projects.

ALSO READ: CRB reforms lined up to ease credit cost for small businesses

In September, President William Ruto mooted plans to reform the country’s credit market and said more than four million loan defaulters will be removed from Credit Reference Bureau (CRB) blacklists.

The President has directed the Central Bank of Kenya (CBK) to abolish the blacklisting of borrowers and instead have a scoring method where defaulters will get a low grade instead of being shut out of the financial system.

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